A zero-interest-earning note is issued for cash. The amount
of cash (the present value) is less than the face value (the future value) of
the note. The difference between the face value and the cash is the discount
which reflects the interest that will be amortized over the life of the note.
In other Sense, A
non interest-bearing note or zero-interest-earning note is a note or bond with
no stated interest rate on its face. Contrary to the name, non interest-bearing
notes do actually pay interest. The interest is implied in the face value of
the note.
A
non interest-bearing note or zero-interest-earning note works the same way a
discounted bond works. The note is issued for a lessor amount than the face
value. After the note matures the entire face value is repaid. It might be
easier to look at an example.
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